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ASIAN ECONOMIC PROSPECTS:
OPPORTUNITIES FOR AUSTRALIA
Company Directors Conference 8th May 2013
Manu BhaskaranCentennial Group
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KEY TAKEAWAYS
Good upside with manageable risks
Cyclical: Asia showing resilience Stronger fundamentals, domestic demand
Long term: best since 1990s crisis ASEAN in particular is making a comeback
Risks to watch Geo-political: Middle East oil prices Country political risks: Malaysia Policy/overheating risks: Vietnam
Implications for Australia2
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CYCLICAL OUTLOOK:
WATCH EXTERNAL IMPACT
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EXTERNAL ENVIRONMENT
Ex-US, main markets are weak in 2013Country
% world GDP
Outlook
US 23.1 Positive: Housing, credit flowsConstraints: Fiscal, rising savings rate
Eurozone 19.3 Negative: Austerity + political stresses = episodic stresses
China 9.3 Slowing manufacturing activity hurtsKey risk: Imbalances, excesses remain
Japan 8.7 Positives: Yen, monetary stimulusNegatives: Structural weaknesses
Other emerging
8.3 Worse: clear signs of slowdown
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EXTERNAL ENVIRONMENT (2)
Other global drivers mostly negativeFactor Outlook
Commodity prices
Oil: falling but risk premium could spikeCyclicals down: rubber, base metals, coalFood: rising risks due to weather
Tech spending Business uncertainty hurting New product launches help
Capital flows Volatile, still potentially destabilising
Currencies Volatile, competitive depreciation in Asia/G-3?
Protectionism The dog that has not barked – yet.
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KEY DRIVERS OF ASIAN GROWTH
Global indicators turning up but risks remain
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ASIAN RESILIENCE IS HIGH
Improved Asian resilience allows shocks to be absorbed
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CYCLICAL: DOMESTIC DEMAND
Infrastructure investment is rising again Thailand, Malaysia, Singapore …
Consumers remain optimistic Tight labour markets: rising wages, jobs Low interest rates with low personal
leverage Strong remittances but farm incomes
slowed Govt policy measures support
growth Fiscal spending Social spending and Minimum wages up
Domestic demand supports growth
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LONG TERM TRENDS
ASEAN’S BRIGHTENING PROSPECTS
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BIG TRENDS FAVOUR ASEAN
Competitiveness gains Rising costs/currency in China Improving business environment Sino-Japan tensions Japanese FDI
Investment/GDP to rise higher growth Share of global FDI to rise ASEAN companies regionalising intra-FDI Infrastructure spending rising Domestic private investment crowded in
Longer term upswing in place
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BIG TRENDS FAVOUR ASEAN (2)
Rise of the laggards Philippines: best growth since 1990s Myanmar: opening up decisively
Rising synergies from integration ASEAN Econ Community taking shape New forms of integration – Iskandar,
Mekong
Longer term upswing in place
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COUNTRY THEMES
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CHINA: ECONOMIC CHALLENGES
Recovery losing momentum Policy uncertainty, weak exports, excess
cap Restructuring exerts a drag
Demographics: downsizing low-value Re-balancing underway
Excessive investment, cost normalisation Speculative excesses unwinding
Could crystallise financial shocks Policy action has contained
extreme risks
Near term challenges remain high
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CHINA: UNDERLYING ISSUES
Shift to lower but higher quality growth
Huge capacity to manage challenges Massive fiscal resources to offset shocks
Lower growth - deliberate policy aim Improve inequality, environment Don’t need high growth, labour shortages
Politics: tensions under control Growing challenges: corruption, cronyism,
… But system tried/tested, adjusting,
adapting
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INDIA: OFF THE BOTTOM?
Economy weak but bottoming out Short term positives
Business and FDI confidence recovering Policy easing: rates cut, Rupee has fallen
Supply side forces remain positive Laggard states rising: Bihar, Orissa, … Relatively good demographics Corporate re-engineering Rural income growth
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INDIA: POLITICS IS KEY
A bumpy ride but still positive
Political will for reform improved New strategy: boost supply side growth
Competition among states helps Better governed get re-elected
Political risks 2013 state elections, 2014 general election Fragmentation, vested interests, corruption
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INDONESIA: HOW SUSTAINABLE?
Slightly faster growth in 2013 Domestic economy on firm footing
Consumer Confidence Index rising Rising incomes, low rates Foreign investment rising
Long term drivers Demographics: cheap, plentiful labour Huge consumer market Natural resources Urbanization 17
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INDONESIA: LONGER TERM
Can do better with clearer policy Constraints on even higher growth
Doing Business: labour laws, corruption… Distortions/Inward looking policies Infrastructure: little progress
Policy changes coming: fuel subsidies
Risk is in financial/monetary dimension Monetary policy loose: inflation, current
acct Rupiah under pressure
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INDONESIA: POLITICAL RISKS
2014 Elections Approaching Positive: democracy entrenched Presidential: Prabowo leading
Hunger for strong, decisive leader But he has an unfortunate history
Deeper malaise in political system Institutions remain weak Vested interests capturing system Extremists’ violence tolerated
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MALAYSIA: MAKING A COMEBACK?
Underlying economy better but politics?
Near term: hit from global demand Exports weakening, commodity prices
down Offset by election-related spending
Structural improvements ETP roll-out boosting investment Reforms spurring FDI Still competitive in key niches New growth poles taking off Services liberalisation
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PHILIPPINES: STEADYING
Stable, looking better New regime: encouraging signs
Aquino: fighting corruption, tax evasion Economy: foundations laid for
rise Fiscal reforms space for investment Remittances up, composition change BPO expanding, up value chain Infrastructure could add to this
PHILIPPINES: FOUNDATIONS LAID
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THAILAND: ROBUST PROSPECTS
After 7 years of crisis, good upside Near term: domestic demand is key
Pro-poor policies, min wage, rebates for cars
Longer term: new surge of growth Massive infrastructure projects – USD73bn Greater Mekong Sub-Region taking off Regional diversification of growth Capacity to adjust to challenges Flexible, diversified, balanced economy
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THAILAND OUTLOOK(2)
Will political risks disrupt outlook? Risks remain high in near term Two fundamental challenges
Divided country – struggle for its soul King’s health and royal succession
Inching grumpily to compromise But there could be shocks along the way
Royal succession bears watching King’s long illness: Thais used to his
absence
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SINGAPORE: DECENT GROWTH
Singapore is at a turning pointNear term: slow growth in 2013 Exposed hugely to global cycles
Especially in tech products Restrictive policies: labour, real
estate Offset by rising wages,
constructionLonger term: steady 3% growth
likely Centre of high growth ASEAN,
India, … Highly competitive, critical mass
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SINGAPORE: TOUGH TIMES?
But some painful adjustments ahead
Model of growth has to change Social safety nets need to expand Shift to productivity led growth
Competitiveness - costs high Local companies forced to restructure Effects could be deflationary
Major challenge for real estate Change in retirement funding system
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VIETNAM – RISING BUT …
Supply side unleashed Demographics excellent
Human capital New growth sources:
Oil/gas, tourism, low-end manufacturing WTO entry has brought in FDI Chinese FDI is rising
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VIETNAM – RISING BUT …(2)
Major constraints remain Political: leadership infighting
possible President vs PM, fight vs vested
interests Financial vulnerability
Higher propensity for inflation Small banks are a risk
Business environment Corruption, State enterprises
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RISKS TO MONITOR
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MAJOR WILD CARD: MID-EAST
Key nations facing unavoidable stresses
Syria: civil war spillovers Turkey, Lebanon, Iraq, Israel
Iran nuclear: some Israeli action likely
Saudis facing simultaneous challenges Neighbors: Yemen, Bahrain Succession & other internal stresses
Egypt: long power struggle ahead Gaza: more violence likely
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IMPLICATIONS FOR AUSTRALIA:
Long term upsides are compelling
But this is a messy region
Australia seems under-exposed to region
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CONCLUSIONS ON ASEAN
Strategically, ASEAN is key Immediate neighbour Astride sea lanes of communication Great Game of influence: US vs China, …
Political hang ups of the past receding New generation of leaders: opportunity
ASEAN as a market for Australia: 660m + USD2.2tr (vs 23m and USD1.5tr) Growing around 6% pa
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CONCLUSIONS ON ASEAN
Common Interests
Both of us need scale to compete Increased ASEAN-AU engagement helps Leverage off AU’s FTAs with ASEAN,
S’pore… Areas of opportunity
Urbanization, infrastructure: engineering Financial deepening: higher value services Healthcare Education
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THANK YOU!
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